In 1910, Englishman Norman Angell wrote the book The Great Illusion to address the myth that nations could economically benefit from war. At the time that Angell was writing, popular and elite opinion assumed that a nation’s political power determined its prosperity, and that countries with preponderate military strength would have the greatest advantage.[1] Angell acknowledges that this belief had validity in the past, however by the 1900s a countries wealth became dependent on credit and commercial contract provided by the international financial system.[2] Because of the delicate working of this system, if country A invades country B, than the chaos caused by the invasion would damage A’s access to credit. Furthermore, country A would be unable to confiscate country B’s wealth without damaging its own economic well-being, and would destroy country B’s citizen’s will to work that is responsible for wealth creation.[3] Through this reasoning, Angell argues that conquest and military power have become economically futile.

The conditions that Angell identified in 1910 have only grown more significant in the modern era, where globalization has increased the interconnectedness of the world’s economy, and computerized trading allows investors to react in real time to countries actions. In addition, states now have powerful tools, such as targeted financial sanctions, to punish countries that use force. Currently, war is not only economically futile, but is devastatingly expensive for countries that engage in it. For example, Harvard researcher Linda Bilmes estimates the United States’ recent wars in Iraq and Afghanistan will cost U.S. taxpayers between $4 trillion to $6 trillion.[4] Even when a country expands their territory, it results in economic loss rather than increased prosperity. When Russia annexed Crimea from Ukraine, it increased its financial burden rather than its prosperity. According to former Russian Finance Minister Alexei Kudrin, it will cost Russia between $6 billion to $7 billion to subsidize Crimea a year.[5] In addition to these costs, Russian Prime Minister Dmitry Medvedev has estimated that sanctions against Russia applied after the annexation has cost more than $106 billion.[6]

However, the great illusion that Angell identified in 1910 still exists in modern times. While it is rare to hear American officials talk of war as a profitable enterprise, it is common for them to downplay the actual costs, such as in 2003 when Deputy Secretary of Defense Paul Wolfowitz told Congress that Iraq was “a country that could finance its own reconstruction.”[7] The other part of Angell’s illusion that lives on is the idea of the profitability of military power, especially the importance of American military primacy. The main ways pundits argue the economic benefits of American military power include geopolitical and geo-economic favoritism as well as greater access to and maintenance of public goods, but as scholar Daniel Drezner points out, there is little empirical evidence to support these positions.[8]

Angell’s basic thesis is still true, and even stronger than in 1910, so his work can provide insight into the possibility of conflict between the United States and China. According to a 2011 RAND study, conflict between the United States and China would likely lead to a global contraction greater than the one that occurred in 2008.[9] For the United States, the economic losses would likely be even higher due the interdependent nature of the U.S.-Chinese economies. In 2014, total U.S.-China was worth $592 billion, China was the United State’s second largest trading partner, third largest export market, biggest source of imports, and the largest foreign holder of American debt, with $1.24 trillion worth of U.S. Treasury bonds in December 2014.[10] According to Angell’s theory, if the United States cares about prosperity, it should avoid a war with China, from which it can only suffer economic losses. This potential for economic loss can act as a deterrent for both the United States and China, so the United States should not consider reducing economic dependence on China as a way to increase its own security, as some pundits have suggested.[11] Beyond economic ties between the United States and China, the United States should encourage China’s further integration into the world economic system. The more China’s prosperity is dependent on others, the more costly its actions will be if it acts in a provocative manner that scares investors. The United States should not oppose Chinese efforts to join, or create, multi-lateral economic institutions, such as the new Chinese led Asia Infrastructure Investment Bank. In addition, the United States should not attempt to persuade allies from increasing economic ties with China, as it will reduce the chance of an ally dragging the United States into a war with China.

Angell notes that military power does not add to economic prosperity, despite the popular belief that political and military power contributes to wealth. For example, many small countries with negligible defense capabilities, such as Norway or Sweden today, have higher per capita GDP than the major powers.[12] However, America’s security policy should not rely on the fact that conflict the military does not increase prosperity, or that conflict with China would be disastrous economically for both parties, but needs to take into account Chinese beliefs about the utility of conflict and Chinese actions. In this regard, in 1910, Angell warned, “So long as the nations believe that in some way the military and political subjugation of others will bring with it a tangible material advantage to the conqueror, we all do, in fact, stand in danger from such aggression.”[13] In this way, the need to maintain a strong defense force is necessary because of the possibility of conflict, but the possibility of conflict depends on the misperception that a nation can gain from war. The last policy recommendation from Angell’s work to reduce the chance of conflict with China addresses this problem. If misperceptions about the value of war cause the risk of conflict, the United States must make efforts to change these misconceptions among their populace and the Chinese populace. Through efforts of propaganda, or through leading by example, the United States should take great efforts to challenge the myths of the utility of war head-on, and once this is widely accepted, have a rational relationship with China.

[11] For example, American strategic thinker Edward Luttwak argues that the United States should reduce its dependence on China and try to undercut its economy to reduce the level of threat China poses. Edward Luttwak, The Rise of China Vs. The Logic of Strategy (Cambridge: The Belknap Press, 2012), 268.